The market does not like the details from the bailout plan that was just announced and equities are selling off. Consequently risk aversion has increased and the US dollar is rallying across the board. We’ve now traded above 1.23, but the market is extremely jittery and volatile right now. The main complaint with the plan is that not enough details were given as to the exact allocation of the funds.
Quick recap of the details:
- plan to launch a public/private partnership starting at $500bln to buy assets, the program can grow up to $1trln (this will help remove toxic assets from bank balance sheets to free up more room on the balance sheet for loans)
- the asset-backed securities loan program is being expanded to $1trln
- under the capital injection program, preferred securities will be convertible to common equity
- banks in the bailout program will not be allowed to acquire other healthy financial institutions
- banks with assets over$100bln must participate in a supervisory review and stress test
- $50bln of bailout funds will be put towards home foreclosure relief (focusing on owner-occupied middle-class homes)
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